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Photo chronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of .85. It’s considering building a new $52 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $6.4 million in perpetuity. The company raises all equity from outside financing. There are three financing options: 1. A new issue of common stock: The flotation costs of the new common stock would be 8.2 percent of the amount raised. The required return on the company’s new equity is 13 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 4 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 7 percent, they will sell at par. 3. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .20. (Assume there is no difference between the pretax and aftertax accounts payable cost.) What is the NPV of the new plant? Assume that PC has a 40 percent tax rate. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.)
the florida retail company is a collection of small consumer electronic retail stores. the company is known for its
An FI is planning the purchase of a $4 million loan to rise the average duration of its assets from 3.5 to 5.0 years. The FI currently has total assets worth $20 million, with $4 million in cash (duration of zero) and $16 million in loans. Assuming t..
Insurer X insures a large number of small property accounts with average premiums of $1,000. The policies range from a low of $600 to a high of $1,400 premium. Insurer X wants to grow but is inhibited by statutory surplus requirements. As the re-insu..
Yield to Maturity and Call with Semiannual Payments Thatcher Corporation's bonds will mature in 11 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semiannually. The price of the bonds is $1,050. The bonds are callable in 5 ye..
Sandy Assam enjoys betting on horse and dog races. This year, she won $4,308 and lost $6,735 on her gambling activities. If Sandy's marginal tax rate is 25 percent, compute the aftertax cost of her gambling assuming that: a. She does itemize deductio..
Billy’s Exterminators, Inc., has sales of $598,000, costs of $296,000, depreciation expense of $48,000, interest expense of $34,000, a tax rate of 35 percent and paid out $69,000 in cash dividends. What is the addition to retained earnings?
A car dealer will sell you the $16,450 car of your dreams for $4,329 down and payments of $339.97 per month for 48 months. Please provide the following information: a) amount to be paid b) amount of interest c) interest rate d) APR (rounded to the ne..
You are 29 years old and decide to start saving for your retirement. You plan to save $5,000 at the end of each year (so the first deposit will be one year from now), and will make the last deposit when you retire at age 70. Suppose you earn 6% per y..
An excel Operating Budget template utilizing this format, with some notes and a partial utilities analysis, has been provided - summary of the budget and the operating, contingency and reserve funds.
How does compound interest differ from simple interest? What happens to a future value if you increase (decrease) the interest rate? Explain why. What happens to a present value if you increase (decrease) the discount rate? Explain why. What do we me..
Use the following returns for X and Y. Returns Year X Y 1 22.3 % 27.9 % 2 – 17.3 – 4.3 3 10.3 29.9 4 20.6 – 15.6 5 5.3 33.9 . Calculate the average returns for X and Y. Calculate the variances for X and Y. Calculate the standard deviations for X and ..
Currently the risk free rate is 1% and the market premium is 3%. Given this information, which of the following statements is correct?
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